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August 5, 2008

Energy Companies Scramble to Get Ready for Edouard

by Sam Savage

By Brett Clanton,, Kristen Hays and Tom Fowler, Houston Chronicle

Aug. 5--Energy companies with Gulf Coast operations scrambled Monday to make the last of their emergency preparations as forecasts showed Tropical Storm Edouard will pound the Texas and Louisiana coastlines.

The hurried responses came after the storm's surprise appearance this weekend and included evacuations of some offshore oil platforms and drilling rigs and at least one oil refinery shutdown.

The storm developed fast and relatively close to the Gulf Coast, leaving most oil and gas infrastructure in deeper waters unaffected.

Refineries and chemical producers along the Texas Gulf Coast, however, were more vulnerable because of the long lead times needed to shut down equipment safely and the threat that strong winds or flooding could knock out production.

Still, the storm drew a yawn from various markets Monday as oil, natural gas and gasoline futures fell.

Analysts attributed the calm reaction to expectations that the storm will have little impact on oil and gas production and refinery output, combined with robust inventories and reduced demand.

"Two or three months ago, these developments would have prompted a buying frenzy," Ritterbusch and Associates of Galena, Ill., said in a note to investors. "However, relatively minor supply-side events can be easily absorbed within an environment of surplus product supplies and declining demand."

Gene McGillian, an analyst with Tradition Energy in Stamford, Conn., added that if a number of refineries shut down operations, energy markets probably would have been more bullish. But before markets opened Monday, Edouard "was already discounted as not being the real deal."

"It seems like a combination of people discounting the threat and how quickly it looks like it's going to disappear," he said.

Major oil companies including Shell, BP and Chevron Corp., as well as some independents including Anadarko Petroleum Corp., were evacuating some workers from offshore platforms in the western and central Gulf of Mexico and monitoring the storm. But as of early Monday evening, they expected deep-water oil and gas production to continue.

Smaller operators with producing fields closer to shore evacuated workers and shut down production. Houston's Contango Oil & Gas Co. evacuated workers and shut in production of 2,000 barrels of oil per day at operations less than 10 miles from Louisiana's shoreline.

The Interior Department's Minerals Management Service said Edouard idled 7.2 percent of the Gulf's natural gas production and less than 1 percent of its oil production.

As a precaution, Houston's Marathon Oil Corp. said it started shutting down its 72,000 barrel-per-day refinery in Texas City. Dow Chemical Co. also shut down plants in the Clear Lake area and La Porte.

Other companies said they were securing equipment and making backup staffing plans but weren't moving to close facilities.

"We're just taking the appropriate preliminary procedures," said Prem Nair, spokeswoman for Irving-based Exxon Mobil Corp., which operates the nation's largest oil refinery in Baytown. "Currently, there are no plans to shut down the refinery."

Other companies, including Valero Energy and ConocoPhillips, the country's largest and second-largest refiners, as well as Citgo Petroleum Corp. and BP, were evaluating staffing and other needs at their plants. BASF's chemical plant in Freeport told nonessential staff to stay home today but will keep facility running.

BP's Texas City refinery is on its way back to running at full tilt after more than $1 billion in upgrades since Hurricane Rita roared ashore September 2005. The plant sent nonessential workers home Monday. Its output of about 400,000 barrels a day is not expected to be affected, spokesman Daren Beaudo said.

But ports in Houston and Texas City closed on Monday, raising the possibility of delayed oil shipments. That could force refiners to shut down and stunt gasoline output, possibly sending pump prices higher nationwide.

Valero spokesman Bill Day said a continued port shutdown could affect production. Other refiners agreed.

"If it's only a couple of days, we'll be OK," said Chuck Dunlap, CEO of Pasadena Refining System, the operator of a refinery at the Ship Channel jointly owned by Brazilian state-owned oil company Petrobras and Astra Holding. "If we start going to five or six days, we'll be impacted."

The storm delayed Enterprise Energy Partners from restarting the Anadarko-operated Independence Hub. The natural gas platform, the world's deepest, in 8,000 feet of water about 185 miles southeast of New Orleans, was shut down July 29 to allow crews to double-check repairs made in June on a pipe leading to the 134-mile Independence Trail pipeline.

Also, the storm's forecast of heavy rain prompted some companies to shut down onshore offices or tell workers they don't have to slosh their way to work today.

Beaudo said BP's administrative campus outside Beltway 8 in West Houston shut down late Monday afternoon and will remain closed today.

ConocoPhillips' nearby corporate headquarters will stay open, but employees can delay morning commutes or work from home if conditions aren't safe for travel, spokesman Rich Johnson said.